Market OutlookMajors Under Pressure

USD

Last week saw the US dollar post losses as weaker than expected economic data compounded the view that the financial hit after the virus has passed will be huge. Despite the weaker data, it was the announcement of yet another economic stimulus plan that saw the US dollar fall lower. Majors are under pressure and the USD is no exception. How is the weekly market outlook looking like?

The Fed announced yet another plan to help small businesses with a fresh $2.3tn plan. An economic stimulus is usually seen as positive for a country’s stock markets, but negative for the currency, in this case, the US dollar.

It’s a busy week ahead for the greenback, with U.S data accounting for half of the week’s readings. The focus shifts to March and April figures in the week ahead. These will give the markets an indication of what impact the Coronavirus had on the economy in the early stages.

March retail sales figures and industrial production figures due on Wednesday will garner plenty of interest. Retail sales will likely see a big hit as lockdown measures keep people away from the shops and deliveries slowed down. However, what seemed like mindless stockpiling may well boost supermarkets.

More data could save the USD?

From the manufacturing sector, expect April’s NY Empire State and Philly FED Manufacturing PMI on Wednesday and Thursday also to garner plenty of attention.

Unsurprisingly, there will be plenty of interest in the weekly jobless claims figures on Thursday. Last week we saw 6.6m more Americans claim unemployment benefit with the expectations only looking for 5m.

From the housing sector, any material slide in building permits and housing starts in March would also test risk appetite. Applications began to fall in late March, so we may need to wait on April and May figures to assess the impact on constructor sentiment, however.

Outside of the stats, expect the coronavirus numbers to have the most significant impact in the week.

EUR

It may have taken its time, but the EU did finally seem to agree on a deal worth €500bn, which ended pushing the Euro lower last week. An inability for EU Finance Ministers to agree on a significant stimulus package also continues to raise question markets over the EU project.

The Euro recovery could come undone should the broader market have similar concerns. Priority, however, is to bring the spread of the virus under control, and in Europe, we see signs of an easing.

Finalized March inflation figures are due out of France, Germany, Italy, Spain, and the Eurozone. While we don’t expect too much influence from the numbers, there will be some interest in the Eurozone numbers on Friday. The numbers for the Eurozone as a whole are projected to 0.7%. Expect the markets to brush aside the Eurozone’s February industrial production figures due out on Thursday. However, Europe is a little ahead of the cycle of the virus. We still do not expect to see a massive impact on this February data set.

Market outlook for the Euro

With the stats likely to have a muted impact, expect the coronavirus numbers to continue to influence. As the number of new cases and deaths ease further, the markets will begin to assess the damage. More importantly, the EU’s action plan will need to restore confidence and support the region’s economy.

There is a genuine danger for the Euro as a whole after this crisis is over. The single currency is now in its fourth major crash and crisis since its inception back in 2000, and the groups’ inability to resolve these issues with monetary policy is glaringly obvious. Questions are quite rightly being asked about the Eurozone as a function, and the depth and breadth of the recession that follows could well be pivotal in the future of the single currency.

Last week’s €500bn package to tackle the economic impact of the virus paled in comparison to that of the U.S administration. When considering the extent of the economic fallout across the EU, there may be concerns that it just isn’t enough. However, as lockdown begins to ease in Italy, Spain and Germany many will hope for a slight pick-up in data, and therefore economic output.

GBP

Last week saw Pound Sterling gain against the US dollar and the Euro, and that theme has continued into the start of the new week. There was upside on Sunday evening as UK Prime Minister Boris Johnson was finally discharged after three days in ICU. Although he is not back to work as of yet, there was a collective sigh of relief as the PM’s safe recovery lifted morale.

Economic data is limited to March retail sales figures due out on Thursday. We can expect some sensitivity to the numbers, with the UK confinement measures likely to have some impact.

April numbers will provide a more significant indication of the effects of the Coronavirus. In March, hoarding may well have skewed the numbers to the upside, many had chosen to stockpile goods from supermarkets, so while we may see a drop off in other items, food and essentials may well buck the trend.

Coronavirus data will be the biggest market mover as EU member states reported fewer cases; the markets will look for a similar trend in the UK. A slower pace of infection in early April would suggest a quicker recovery in the UK economy that should support the Pound. However, data over the weekend saw the number of deaths in the UK break the 10,000 level as it is now expected that the UK could well be one of the worst-hit countries to date.

Market outlook for the CAD

It was a mixed week for the Loonie last week as it gained against the greenback but fell against the likes of the Australian Dollar and Euro. The speed of the virus growth in North America has been one that has alarmed markets as the USA now becomes the epicentre of as we see the continued sweep of the globe.

It’s a busy week on the economic calendar in Canada. However, we may see that data have a muted impact on the Loonie. February Manufacturing Sales figures and Foreign Security Purchases are due out on Thursday and Friday, and the fact these are for February makes them almost insignificant due to the lack of virus-related data.

Monetary policy will be the most significant influence, with the Bank of Canada set for its interest rate decision on Wednesday. Following two emergency rate cuts, the markets are expecting that the BoC will stand firm on policy at this week’s meeting. Any forward guidance will, however, garner plenty of interest. Global markets hope to see a substantial economic hit once the medical impact of the virus passes, yet how deep is unknown.

We saw the FED make another move last week, which does open the door for the BoC to make a move. March employment numbers from last week indeed suggest that more support is needed, after terrible readings. We can also expect more positive updates on the coronavirus numbers to provide support for the Canadian dollar.

AUD

The Aussie dollar was a strong performer last week after we finally saw an agreement on oil output. The global cut of 10m barrels per day was threatened to be derailed by Mexico over the weekend as the Mexicans were reluctant to agree to their 400,000 barrel per day part of the deal.

Mexico had offered a 100,000 b\d cut, and Donald Trump had offered the US to make up the shortfall. However, Riyadh was keen to pressure Mexico to toe the line and warned of the dangers of exemptions to the deal.

The cut in oil output is key to the Aussie as a commodity-based currency but is also critical to the overall oil market as prices remain depressed at around $22 per barrel. Can a Major like the AUD perform well under pressure?

The calendar is looking busy in Australia. On Thursday, expect March employment figures to provide the most significant amount of market direction. We’re not going to see a similar jump in the unemployment rate as seen in the US, but any rise will be Aussie Dollar negative.

With Coronavirus wreaking havoc, the RBA’s reliance on consumer spending has come undone. Particularly dire numbers will question the RBA’s current stance on monetary policy. With so much economic uncertainty ahead, some reversal of last week’s gains is likely.

Market outlook for the NZD

It’s a quiet week ahead on the economic data front in New Zealand. April’s Business PMI, due out on Friday, is the only major stat for the week. The numbers will have a material impact on the Kiwi, with dire numbers likely to support another step to be taken by the RBNZ to combat the economic impact of the virus.

New Zealand has not been as severely affected as some other nations, mainly due to its proximity and trading ties with China. As China tries to get back to some sense of normality, we could well see some degree of upside for the Kiwi Dollar.

Chinese data will have a significant impact on the New Zealand Dollar as we get set for a busy week. On Friday, Q1 GDP numbers are due out along with retail sales, industrial production and fixed asset investment numbers for March.

While GDP numbers will undoubtedly send shivers through the global financial markets, retail sales and industrial production numbers could soften the blow as yet again stockpiling could well artificially inflate some of this data. The Q1 GDP reading is expected to post a massive fall to a vast -10%. For some perspective, normal market conditions usually see growth in China anywhere between 6% and 8%.